CCS plans mired in confusion as Treasury raids £1bn fund

The future of the UK's carbon capture and storage (CCS) programme was thrown into confusion this morning, when chief secretary to the Treasury Danny Alexander revealed that the Treasury will raid the £1bn allocated to support a major CCS demonstration project to fund new infrastructure projects.

Speaking on BBC 5 Live's Breakfast programme this morning, Alexander said that the failure to agree £1bn of government funding for a proposed CCS project at Longannet power station in Scotland means that some of the money could be diverted during this parliament to support Chancellor George Osborne's plans for around £5bn of new infrastructure projects.

"We announced a few weeks ago that the negotiations on CCS were not successful on the programme that we being discussed," he said. "We're launching a new competition to provide £1bn for CCS but that competition, obviously, is going to take longer, so much of the money that we'd allocated to spend in this Parliament we've now reallocated to different sorts of projects."

The announcement completely blindsided the CCS industry, which is now seeking urgent reassurances as to how much of the £1bn will be redirected.

"This has come as a complete surprise," Jeff Chapman, head of the CCS Association, told BusinessGreen, adding that, while the UK's first CCS demonstration project had been delayed as a result of the collapse of the Longannet deal, "some of the money will be needed before the end of the parliament - it is unlikely we'd be building anything at that stage, but we would need to see some of the money committed".

A spokesman for the Department of Energy and Climate Change insisted funding for CCS would remain available during this parliament.

"£1bn remains available to support CCS projects," he said. "We do expect CCS projects to come forward in this spending review period and for some expenditure to be committed as part of that process.  The amounts will be determined by the projects selected."

Osborne is expected to announce tomorrow up to £5bn of new funding for infrastructure projects, such as school building programmes, energy projects and, most controversially, road building.

Friends of the Earth's Craig Bennett accused the government of mishandling the proposed CCS project, and urged the Treasury to divert any cash taken from CCS to other low carbon projects.

"First and foremost you have to ask why the CCS project has been delayed again. Successive governments have failed to move fast enough to demonstrate this technology, but Alexander seems to suggest the delay is nothing to do with the government," he said.

"And secondly there are plenty of low carbon projects that need this money, yet it looks like it is going to support a range of infrastructure projects, many of which, like road building, will be high carbon and will lock us in to high carbon infrastructure."

Bennett argued that using just a fraction of the money freed up from the CCS fund could minimise the impact of proposed cuts to solar feed-in tariffs, which experts fear could result in tens of thousands of job losses.

"To release this money just weeks after they said there was no money to protect the solar industry from cuts that put tens of thousands of jobs at risk is little short of a disgrace," he said.

His comments were echoed by Margaret Ounsley, head of public affairs at WWF-UK. "If the information trickling out about what is likely to be in the autumn statement is correct, then this is a disappointing mixed bag of measures as far as the environment is concerned," she said.

"You can see that the Chancellor needs to do something to invest in jobs, but it would be much more imaginative and long term to be supporting low carbon technologies and energy efficiency, rather than taking it out of CCS and investing in road building."

Osborne is expected to further anger green groups tomorrow when he announces a long-awaited package of tax breaks designed to minimise the impact of his planned carbon floor price on energy intensive industries.

The government has warned that the new carbon floor price will push up the cost of energy for large businesses and could force some of the most energy intensive firms to relocate overseas.

As a result, the Treasury has been working on a series of tax breaks for such firms and, according to reports in the Financial Times, will announce around £250m of targeted tax breaks tomorrow.

The paper reported that £212m of "compensation measures" will be offered to energy intensive firms over the three years from 2012-13, while the level of tax breaks offered to companies that sign Climate Change Agreements is also expected to be raised from a 65 per cent rebate on the Climate Change Levy to a 90 per cent rebate.

Significantly, the Department for Business is expected to launch a consultation on how the tax breaks will be dished out and whether it should be offered to all energy intensive firms or targeted at those most likely to relocate, such as steel and chemicals firms.

In addition, it has been widely trailed in this morning's newspapers that Osborne will delay the planned 3p increase in fuel duty that is due to come into effect in January.

However, in a number of green moves the Treasury is expected to take fresh steps to hold down rail fares, and some low carbon energy projects are likely to benefit from the new infrastructure funding. 

There have also been reports that some of the mooted road building projects will operate as toll roads that could usher in new road pricing schemes.